Inside of QE Is Apparently No Better

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

nature of the British recovery as it fit within the more nebulous global hoard. There were emerging threats from an “unexpected” setback over a tiny little country on the Aegean, perhaps depressing Europe so soon out of the depths of the global Great Recession.

Mervyn King, the governor of the Bank of England, warned today that the weakness of the eurozone is jeopardising the UK’s recovery, and the emergency £200bn quantitative easing programme might have to be re-started if the economy deteriorates in the coming months.
“My particular concern at the moment derives from the health of the global economy, and in particular our major trading partner, the eurozone,” the governor said.

These economic “health” concerns appear timeless, as that statement is at home in 2015 as 2010 (a very relevant clue). Japan holds no monopoly on multiples of QE, as everywhere it is tried it is tried over and over. That wouldn’t come at the BoE until October 2011 in a series of three more QE’s to accomplish £175 billion on top of the £200 billion orginally done. While Britain after re-recession has fared better than the rest of Europe since, that still doesn’t equate to what the people of the jurisdiction think about what is supposed to happen and take shape. After all, the current political environment there is focused, as here, somehow on a “living wage” during all thisstatistical robustness.

But what is truly remarkable is how all these central bankers after they leave their posts so easily discard that which was inarguably effective and productive when they were at it. Just this January, Mr. King, speaking for the first time since retiring a few years ago, was especially blunt and, quite honestly, sensibly scientific for the first time in many, many years.

In his first public speech in England since his term at the BoE ended in June 2013, Mr King said he was concerned about a persistent weakness in global economic demand, six years on from the depths of the financial crisis.
“We should worry about that,” Mr King told an audience at the London School of Economics, where he was once a professor.
“We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years … is the answer doesn’t seem (right) to me,” he added.

The similar conversion of Alan Greenspan (though clearly not Bernanke, yet) more than suggests that while on the spot these central bankers just don’t know what else to do, but feel their own moral imperative to do something. Given monetary neutrality as an established matter of faith in orthodox monetarism, they at least assume they are doing no harm. The fact that they have to keep at it after nearly a decade already (quarter century in Japan) should be, as King alludes, quite disproving.

It is a microcosm, to be sure, but what is meant here in the grand scheme is not just some tweaking of central bank operations but a necessary and full reform of not just central banks but the whole works from the philosophical ground on up. It will be, as today demonstrates, quite a shock to a great many. It will not have been, however, the first time the idea of “best and brightest” was limited to self-reflection.